Strategic Organization

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The field of strategic management within the evolving science of strategic

organization
Joseph T. Mahoney and Anita M. McGahan
Strategic Organization 2007 5: 79
DOI: 10.1177/1476127006074160

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STRATEGIC ORGANIZATION Vol 5(1): 79–99
DOI: 10.1177/1476127006074160
Copyright ©2007 Sage Publications (Los Angeles, London, New Delhi and Singapore)
http://so.sagepub.com

S O ! A P B OX
E D I TO R I A L E S S AY

The field of strategic management

within the evolving science
of strategic organization
Joseph T. Mahoney University of Illinois at Urbana-Champaign, USA

Anita M. McGahan Boston University, USA

The strategic management field has matured over the last decade and is now at
a critical point in its development. This essay suggests a direction for how the
field can evolve by outlining an integrative research and teaching agenda that
we hope inspires scholars in our field. There are significant challenges and risks
in front of us. A tip of the iceberg is that students now rank poorly their strate-
gic management courses at several top business schools, which through much of
the 1980s and early 1990s typically earned exceptional teaching ratings.1 At
present, business students at many schools seem to prefer topics such as entre-
preneurship, technology management and corporate finance. In a few instances,
departments that had once been dedicated to strategic management have folded.
Even in schools where strategic management courses are strong, the curriculum
may not be entirely up-to-date. The number of strategy journals and other
research outlets with top-tier impact has not increased as fast as needed (in part
because of reputational lags at new journals), and thus strategy researchers com-
pete for limited slots available in research publication outlets that will count
significantly in promotion and tenure decisions.
Our critics come from other corners as well. Managers often criticize strate-
gic management scholarship for being unnecessarily theoretical and dissociated
from the real problems of strategy. While practitioners often find useful our
research in change management and the strategy development process, many
other frameworks are not part of the regular practice of management but are the
special province of consultants.
Scholars in the root disciplines of our field often criticize strategic manage-
ment research for insufficient grounding in theory.2 The strategic management
field has a relatively weak voice in the formulation of public policy, perhaps
because we have not focused sufficiently on the important implications of
our insights for managers in government and other non-profit domains
79

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80 S T R AT E G I C O R G A N I Z AT I O N 5 ( 1 )

(Barney, 2005).3 We have been accused of encouraging our business students

into the behaviors that led to recent ethics and accounting failures in large firms
such as Enron, Tyco and WorldCom. Perhaps most important, those of us com-
mitted to scholarship in the field increasingly have an unsettling sense that we
are not working on the most important strategic issues of our time. In sum, the
number and intensity of constituencies discontented with strategic management
seems to be rising and should not be ignored.
There are also some major accomplishments worth celebrating. Research in
strategic management has improved general understanding of major issues in
the resource-allocation process – from analysis to diagnosis to strategy formula-
tion to implementation. Strategic management faculties have trained a genera-
tion of BAs, MBAs and working managers, and have had a central and
substantial influence on strategic thinking and the practice of management.
We have developed important theoretical insights concerning practical strategic
issues such as vertical integration, diversification and managing the
multi-business enterprise both home and abroad.
The central message of this essay is that strategic management scholars
(including the two of us) should raise our aspirations. We need to move ahead
with the confidence and authority to have the kind of meaningful impact envi-
sioned when strategic management emerged as a distinct field years ago. This
essay reflects this view, as it also reflects on opportunities for the strategic man-
agement field to confront new issues with integrative theory concerning strate-
gic organization. In addition, the strategic management field will benefit from a
renewed focus on important phenomena and new pedagogy that builds on our
heritage of innovation. Taking on these opportunities now is crucial for revital-
izing the intellectual base and agenda of the field, for understanding the hetero-
geneous performance of institutions and markets, and for re-establishing and
increasing creative complementarities between teaching and research. The
opportunity today is to generate new integrative theory based on the empirically
validated insights that we have obtained over the past several decades. This new
integrative theory emphasizes property rights and carries implications for the
strategic organization of both institutions and markets. By tripping off a new
cycle of integrative knowledge creation and scientific discovery about the strate-
gic organization of both institutions and markets, the strategic management
field will better serve the needs of students, executives, scholars (including those
in the social-science disciplines) and society.

Genesis of strategic management

The field of strategic management emerged mainly during the 1970s and early
1980s from the social and administrative sciences, primarily because of interest
among both practitioners and students in analytically grounded and focused
heuristics for understanding the principles driving organizations to sustained

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 M A H O N E Y & M C G A H A N : T H E F I E L D O F S T R AT E G I C M A N AG E M E N T 81

superior performance (for an excellent review, see Hoskisson et al., 1999).

The central aim of our field is to explain and predict the performance of
organizations, and particularly firms, as distinct from the performance of markets,
individuals and economies. In this article, we maintain that the findings from our
research to date indicate that firm performance is substantially embedded in the
performance of markets and other institutions. Our principal audiences are man-
agers and managers-to-be, whom we try to reach both pedagogically and practi-
cally, and other academics in the social sciences, whom we seek for legitimacy and
influence. We want to add policy-makers and managers in a range of other insti-
tutions to this list. Explaining organizational performance requires both theory –
to define organizations, performance, their interrelationships, etc. – and empirical
analysis. We call specifically for a broadening of the research and teaching agenda
to ‘strategic organization’, an approach that considers simultaneously the purpose-
ful action of individuals in shaping both institutions and markets.
From the inception of strategic management, one important antecedent field –
business policy – offered the ‘big picture’ on firm performance differences, but
that big picture derived mainly from field-based methods rather than the cross-
sectional analytics of the social sciences. The detailed theory building and empir-
ics of the social sciences produced insights on organizations and performance, but
were often relatively narrow and difficult to translate into action by general man-
agers with broad responsibilities for resource allocation (Bower and Gilbert,
2005, Shanley and Peteraf, 2007). The increased financial valuations of compa-
nies since the 1980s make both the pragmatic and scholarly agenda of strategic
management of explaining firm performance more compelling today than ever.
Yet we have also established that firm performance cannot be explained and pre-
dicted independently from relevant markets and supporting institutions.
As the strategic management field evolved, we have had to defend its dis-
tinction from root disciplines and traditions while (sometimes privately) worry-
ing about the quality of our theory and methodologies and about the
comprehensiveness and accuracy of our empirics. Both of your authors have been
called into deans’ offices and attended business school retreats to articulate fully
the character and contributions of strategic management, and we typically
found ourselves defending our field to colleagues as an important, rigorous, and
distinct field of study with its own theory, methods and empirics. Both of your
authors also admit to feeling relieved (especially during the early part of the
1990s) when we were successful in the argument.
The necessary defensiveness of earlier times is turning into a liability. For
the strategic management field to flourish, we need to become more cohesive
and boldly inspiring rather than defensive, rigid and timid. The field must con-
nect to and embrace new theory, methods and empirics from other social and
administrative sciences, and make them relevant to students, managers and
other stakeholders. In particular, we have much to learn from the fields of
anthropology, history, political science, social psychology and sociology, and
much to gain from collaborations with colleagues in these disciplines as well as

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82 S T R AT E G I C O R G A N I Z AT I O N 5 ( 1 )

those in entrepreneurship, finance, organizational behavior, information sci-

ences, and technology management. Through collaborations with scholars in
these fields, we can generate new knowledge and systematic original theory-
building. Some of these connections are happening already: interdisciplinary
research studies that achieve the precise standards of each embedded discipline
carry the potential to lead us toward important strategic insights (Postrel and
Rumelt, 1992). Much more research of this sort is needed.
In this essay, we also maintain that the core agenda of the field of strategic
management be extended in several ways. The approach we advocate emphasizes
the complex challenges of managing diverse institutions regardless of their for-
mal contractual structure as firms, non-profits, or even public agencies. We also
recommend deeper, integrative treatment of the interplay between institutions
and markets, each of which is a form of strategic organization (Williamson,
1975, 1985). The perspective we advocate is that our constituents can benefit
from the insights we generate regarding how organizations of both types yield
heterogeneous performance.

Accomplishments

To move ahead with confidence, to embrace new theory, methods, empirics and
pedagogy, we can look back on how we made previous advances – and there are
many in the last 20 years. The following list represents some of the ideas that
could be readily adapted to the new agenda of strategic organization in both
institutions and markets.

Context and structure matter

A fundamental set of findings in strategic management can be summarized by

the idea that context and structure matter in an integral and systemic way both
for firm-level behavior and organizational performance. A principal framework
is industry structural analysis (Porter, 1980).4 This fundamental way of think-
ing has been complemented by and has influenced other strategic insights
(McGahan, 2004). Exciting research on formal and informal institutions,
culture, ideology, ecosystems and networks (Gulati et al., 2000; Bresnahan
et al., 2006) offers new ways of strategic thinking about the relationships
between firm-level behavior, organizational performance and external structures.
We hope that research will continue on the structure of both private- and pub-
lic-sector organizations and on the implications for organizational performance.

Competitive interaction matters

A second theme builds on research by our colleagues in economics: Competitive

interactions among firms often occurs in complicated, sophisticated and subtle

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ways that are not wholly anticipated by either antitrust policies or conventional
theories of industrial organization. For example, building on our research
heritage (Penrose, 1959; Nelson and Winter, 1982), we now have reached a bet-
ter understanding about how companies compete for resources, deploy these
resources in economically attractive market segments and utilize these resources
efficiently with dynamic capabilities. As an example of more subtle forms of
competitive interactions, consider that a firm may have an incentive to encour-
age its rival firms to experiment with new technologies because of potentially
beneficial spillovers, technological improvements and market enhancements
(McGahan and Silverman, forthcoming). On top of this consideration, entrepre-
neurial experiments that lead to failure permit survivors to learn. One firm’s
innovative failure may create another firm’s real growth options for the future
(Kogut, 1991; Bowman and Hurry, 1993; Trigeorgis, 1996).

Firm behavior is complicated

Research in strategic management suggests that neoclassical and modern

theories of economics often fail to explain and/or predict important elements of
firm behavior and market outcomes. Legitimacy, status and intra-organizational
dynamics often vary quite dramatically across firms that otherwise may appear
to be similar. Sociological and social psychology approaches can highlight new
explanations and predictions about organizational tendencies that seem to defy
traditional economic reasoning (Reuf, 2003; Weick et al., 2005). The perfor-
mance implications of personal relationships, cognition and the affective inter-
play between people remain largely unexplored by strategic management
scholars. Path dependency and institutional change are also largely unexplained.
New research employing cognitive models on the framing of strategy problems
are a beginning (Tripsas and Gavetti, 2000), but there is much left to do.
Understanding these and other inter-organizational dynamics requires an inter-
disciplinary approach that embraces theoretical and methodological pluralism
(Bowman, 1990; Mahoney, 1993; Cannella and Paetzold, 1994; Mahoney and
Sanchez, 2004; Van de Ven, forthcoming).5

Leadership and management are distinctive skills and both are crucial
to the performance of the firm

We have become increasingly concerned in recent years that the strategic

management field has focused so much on strategy that management is no
longer in the foreground of our vision. As Barnard (1938) noted long ago,
failure to cooperate, failure of cooperation, failure of organization, disorganiza-
tion and the destruction of organization are characteristic facts throughout
human history. To be sure, managerial dilemmas cannot be fully understood
without considering economic incentives, and yet, if anything, the modern
organizational economics literature in strategic management building on

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property rights, transaction costs and agency theory has taught us that economic
incentives alone cannot completely solve managerial dilemmas (Miller, 1992;
Kreps and Baron, 1999; Mahoney, 2005). Leadership and responsibility are
essential for the distinctive competence of an organization (Selznick, 1957).
Foresight, long-term purposes and high ideals provide the basis for the persis-
tence of (intra- and inter-firm) cooperation and organizational coherence.
Management behavior is not only informed by the study of economic incentives
but also by the study of intrinsic motivation from a psychological perspective,
the study of cooperation and complex interdependencies from organizational
and sociological perspectives, and the study of organizational ideology from a
political science perspective (North, 1990; Scott, 1995).

Firms exist at multiple levels

A final theme from strategic management’s past is that theories of the firm are
elemental for developing new intellectual combinations of thought to explore
what Barnard (1938) called the ‘science of organization’ (see McGahan and
Mitchell, 2003, which emphasizes this point and discusses the nature of these
building blocks).6 Presently, a strategic theory of the firm is at a pre-unified
state of theoretical development. We cannot succeed without acknowledging
why firms exist in a nexus of relationships between governments, individuals,
markets and other social institutions. An integrated agenda in the field of strate-
gic management is a feasible, challenging and rewarding endeavor in the evolv-
ing science of strategic organization (Gavetti and Levinthal, 2004; Drnevich and
Shanley, 2005; Mahoney, 2005).
Bridges can and should be built between contested intellectual terrains. As
an example, Mahoney (2005) reviews and highlights connections between: first,
the behavioral theory of the firm; second, transaction costs theory; third, prop-
erty rights theory; fourth, agency theory; and last, dynamic resource-based the-
ory, and suggests that content research and process research need to be joined in
the next generation of strategic management research. While these theories are
related, each theory is unique, with its own canonical problems. Joining the the-
ories into an integrative approach is essential for yielding a range of new insights
(Villalonga and McGahan, 2005). The behavioral theory of the firm may be
joined with transaction costs theory (Nickerson and Zenger, 2004); and the
real-options and dynamic capabilities literature may be joined (Li et al.,
forthcoming) in the next generation of research.

Marching orders

The themes above call out different orders for the next march. Let us consider
recurring words in these orders, like ‘new’, and ‘phenomena-oriented’. The strate-
gic management field can flourish if it embraces new and integrative theory,

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methods and empirics, and re-embraces a practical problem-solving orientation

(Postrel, 2002; Nickerson and Zenger, 2004;). Indeed, building theory for strate-
gic management has several objectives. The central purpose of our research should
be to understand social organizations, and particularly firms, but also markets and
other institutions that shape the creation of value and its distribution across vari-
ous constituents. We need research rigor in terms of conceptual adequacy, method-
ological innovation and the generation of accumulated empirical evidence. We
also need practical relevance. Pragmatically, the validity of an argument depends
upon the consequences of acting upon it (Dewey, 1929; Kaplan, 1964). The criti-
cisms we face – from students, managers, policy-makers, and society at large –
may be the tip of an iceberg that we still have time to avoid hitting.
There are pressing events going on in the world around us that are simply
too important and consequential to ignore. Here is a partial list: pervasive and
worsening poverty among vast populations of the economically disenfranchised;
natural-resource depletion; energy challenges; digitization; the globalization of
many industries; the prospect of skyrocketing interest rates; the integration of
capital markets across many countries; corruption; and terrorism (North, 1990;
Shleifer and Vishny, 2002; Marcus, forthcoming). Each of these phenomena car-
ries the potential to challenge the fundamental premises that govern the way
corporations today are organized to generate value for customers, shareholders
and employees. To be sure, each of these issues is also within the province of
other social science and administrative disciplines, yet the field of strategic man-
agement can offer perspectives that are unavailable through the lenses of these
other disciplines. For example, our theory and managerial frameworks on sus-
tainability offer insights that can inform the policy debate on sustainable busi-
ness practices for poverty alleviation (McGahan, 2006). It is likely that the
resource-based view can yield significant insights on the consequences of
natural-resource depletion for firms, customers, employees and communities
that have been supported historically by the exploitation of such resources.
To clarify, let us emphasize that we are not submitting that the fields of
economics, political science, and energy sciences should cede their intellectual
domains to the strategic management field, despite the abject failure of many
policies from these fields over the past several decades. Examples of these failures
include the policy prescriptions from economists that led to devastating and
deepening poverty during the mid-1990s in Russia, and the analyses by politi-
cal scientists and economists that led to billions in foreign aid to sub-Saharan
Africa over the past 40 years, with an outcome of lower income per head in the
region. Yet of course there are also instances of effective policies in each of these
domains. Our hope is that research continues in each of these areas related to the
vitally important problems described here, and that the policy prescriptions
based on such research continue to improve.
We also believe that the field of strategic management offers new and criti-
cal perspectives on these issues. As our field matures to encompass the full
agenda that we have suggested, it has several especially relevant features. We

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deal with the ability of the individual actor to shape organizational outcomes;
we analyze a broad range of institutions and markets; and we take heterogeneity
in performance as our principal topic.
We also observe that the strategic issues are of such broad and deep signifi-
cance that all relevant perspectives – such as ours – are needed to shed light on
effective business and public policies. Several elements of our suggested
approach are likely to enhance and accelerate the potential for our contributions.
Each of the accomplishments listed above could equally apply to multilateral
agencies such as the World Trade Organization (WTO), governmental organiza-
tions such as the President’s Emergency Plan for Aids Relief (PEPFAR), non-
governmental organizations (NGOs) such as Oxfam, funding agencies such as
the Rockefeller Foundation and public–private partnership organizations such
as those supported by the Clinton Foundation.
The strategic management field’s commitment to peer review, collaborative
presentation, publications and the training of new research scholars promotes
the production of public knowledge that neither companies nor consultants
would or perhaps could have produced on their own (Huff, 2000). The knowl-
edge we generate applies to managers in firms and managers in public organiza-
tions in government and the broader non-profit sector. For example, we can
generate integrative insights about knowledge and capability management in
public-sector institutions that are not pursued in other disciplines and fields of
enquiry. We know how to evaluate context and competitive interactions.
Graduate and professional schools of government, public health and education
often promote public–private partnerships to achieve efficiencies that are in the
common interest. We should reach out to these public managers and their pub-
lic policy issues and make a commitment in the strategic management field to
serve these constituencies as we have served, and will continue to serve, private-
sector managers and firms. It is essential to our vitality and relevance.
There are untapped opportunities to offer strategic insights to our business
students, managers, organizations, and society. Many of these opportunities relate
to problems of the commons, to use the language of political science (called exter-
nalities in economics). Here are some opportunities worth considering.

Develop new teaching materials and pedagogy to reinvigorate

our courses

The first courses in strategic management, developed and implemented in

leading business schools during the 1970s and 1980s, were heralded for their
pedagogical innovation and for their resonance with students. Today, many of
our strategic management courses are viewed as repositories of multiple frame-
works that are not tightly integrated and that are aging rapidly. In many of
these courses, the macro level of analysis is the industry rather than the country
or the culture. Few of these courses emphasize a long historical perspective.

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We need pedagogy that is innovative in both content and context, includ-

ing new course materials that demonstrate the breadth of strategic issues that
we analyze and the depth of our critical frameworks. Contextualism recognizes
that there is a gap between universal theory and concepts useful in a specific
context, that is, useful to a specific manager, at a specific time, on a specific
issue.7 That said, we hasten to add that the recognition of boundaries and the
limitations of knowledge do not imply ad hoc approaches to problem solving.
Indeed, it is critical that the material that we teach (just as the research we pro-
duce) should add up to something cohesive and integrative. The insights that
emerge from course development ought to be both valued and valuable. Michael
Tushman of Harvard Business School often speaks about his experiences in tying
together research and teaching themes by working with managers in specialized
educational programs designed specifically for this purpose: translating schol-
arly insights from professors into practice, and practical experiences from
managers into scholarly insights for professors.8 Think of bringing the same
corroborative, resonant pedagogical approaches to MBA and undergraduate
programs. And think of the power of complementing this approach with a
longer historical perspective.
Our central recommendations are as follows.

1. Creative approaches are needed.

2. We need to teach about important questions where managerial capability as
well as strategic choice matters.
3. We should teach about organizations and markets together.
4. Teaching assignments should be integrated with research assignments to
increase their complementarities.
5. Innovative curriculum designers and teachers should be recognized for their
contributions in promotion and tenure processes.

We want to be helpful and specific, without being restrictive, about how

pedagogical innovation may occur. With this objective in mind, we provide a
few examples of pedagogical innovation to clarify the kinds of improvements
that we advocate. First, one facet of pedagogical innovation could involve struc-
tured field experiences combined with integrative class discussions. Attempting
such an integrative educational experience should prove to be challenging and
exciting for both instructors and their students. Above, we refer to programs
designed by Michael Tushman and his colleagues at Harvard Business School for
IBM that yield unprecedented insights for research because of the ways in which
the frameworks are tested and adapted based on their applicability in use. These
programs are one example of integrative pedagogy.
A second facet could rely on integrating diverse media to simulate the com-
plexity of real-world management problems. For example, Roberto et al. (2005)
provide a multi-media case study on the Columbia Shuttle disaster in which

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each student is assigned to role-play one of six NASA identities and receives
computer desktop information as it unfolded through the course of eight crucial
days in the mission. The complexity of the management problems facing NASA
becomes evident as students experience team dynamics and the confusion and
complexity of the unfolding situation. In general, the use of video, interviews,
real-time digitized imagery, the internet, historical materials and other media
can greatly enhance the information accessible to students for case discussions
and complement traditional reading assignments.
A third facet of pedagogical innovation involves developing modes of learn-
ing outside the traditional teacher–student exchange. Peer review, peer-to-peer
exchange and the cultivation of specialized student expertise represent examples
of this process. The provision of real-time feedback about student comprehen-
sion through polling devices can greatly enhance even a traditional lecture
because the information allows the instructor to adjust the pace and emphasis of
the lecture even as it is delivered. The salient idea here is that the instructor is
learning rather than only teaching in a classroom session.
Many other facets of pedagogical innovation are relevant, such as service
projects, investigative travel and new kinds of homework assignments, to name
a few. Rather than comprehensiveness, we call for greater creativity. Some of the
lowest-hanging fruit in pedagogical innovation involves deploying more than
one tried technique simultaneously, for example, employing diverse media in
integrative class discussions based on field experiences (imagine a group of stu-
dents making a short film about a difficult managerial situation). The opportu-
nities are likely to deepen if new theory and important phenomena are
integrated into the agenda of the strategic management field (imagine that the
film is about the challenge of managing an innovative public–private partner-
ship in a setting of poverty).
The marketplace of ideas, like the marketplace for differentiated products
and services, has its barriers to entry and market frictions (Arrow, 1974).
Academic programs, beginning at the undergraduate level and certainly at the
graduate level, typically inculcate students in ideas and techniques that are
approved by senior faculty. These insider instruments of control are accompa-
nied by outside influences, such as financial support for certain kinds of research
and, to a lesser extent, certain kinds of teaching. As a hypothesis, would a
professor write (or assign) a case analysis that was critical of A. H. Robins’s
handling of the Dalkon Shield crisis if that professor is on the faculty of the
university that received a substantial endowment from the Robins family? Just
as entrants in real-world product markets need to be tough, strategic manage-
ment researchers who are willing to ask important questions need to be tough-
minded and to be prepared to field criticisms. Intellectual training is not
sufficient to prepare scholars to reach their full potential in the marketplace of
ideas. Staving off the ‘slings and arrows of outrageous fortune’ (to quote
Shakespeare’s Hamlet) is also part of the deal if we are to avoid going along to
get along.

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Develop new theory at the intersection of standing

theoretical streams

Two fundamental questions in the history of economic thought concern value

creation and the distribution of value in ‘the wealth of nations’ (Smith, 1776;
Schumpeter, 1954). These two questions are – or arguably should be – the two
fundamental questions concerning a strategic management approach to what a
firm is (i.e. the theory of the firm discussed in Rumelt et al., 1994). In a busi-
ness world in which increasing importance is attached to intangible
(knowledge-based) resources – as Itami and Roehl (1987) predicted two decades
ago – and consequently greater deployment of implicit and incomplete con-
tracting (Williamson, 1996), viewing shareholders as the sole residual claimants
is an increasingly tenuous description of the actual relationships among a firm’s
various stakeholders (Hart, 1995; Zingales, 2000). What we see in real-world
corporate law is that legal rules and property rights are changed in order to
constrain corporate activity when other constituents are not satisfied.
Research based on the assumptions of perfect input-factor markets and
complete contracts cannot deal effectively with the fundamental questions of
wealth distribution. Such assumptions serve well neither our research in the
field of strategic management nor management practice. The application of
theories derived under these assumptions to real-world settings can lead to the
implementation of policies that are exploitative and tragically inappropriate.9
Such a research approach also cultivates a perception among our business
students that the relationships between firms and people are merely clinical
rather than rich and experiential. A more nuanced and multi-faceted approach
to the practice of business will yield both greater insights about practice and a
foundation for further theoretical developments. Consider, by contrast, a
strategic organization model of sustainability that considers how customers and
employees will co-evolve with the firm (and industry) through exchange and
that encourages managers not only to capture economic value but also to ensure
that customers and employees also have economic incentives to invest for future
productivity (Coff, 1999; Wang and Barney, 2006). This approach would
maintain the sophisticated principles of the economics of organizations,
and would also consider insights about human capital grounded in related social
sciences.
On the content side, the next generation of resource-based research (which
assumes imperfect factor markets) needs to be joined with the modern property
rights research literature in economics (Hart, 1995) and corporate finance
(Zingales, 2000), which provides an incomplete contracting approach. This
approach will lead to a rigorous economic foundation for a stakeholder theory of
the firm leading the field back to its roots in business policy from the Harvard
Business School of the 1950s, but now with rigorous theory to back up the
stakeholder orientation. Such an approach will enable the development of a
strategic theory of the firm that deals simultaneously with economic value

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creation and value distribution (Cornell and Shapiro, 1987; Donaldson and
Preston, 1995; Coff, 1999; Post et al., 2002).
On the process side, there will be a need to re-consider processes of conflict
resolution among the firm’s stakeholders, research that will lead the strategic
management field back to its Carnegie School origins concerning the behavioral
theory of the firm (Simon, 1947, 1982; Cyert and March, 1963). A related
renewed interest in stakeholder theory will lead us closer to studying stakeholder
firms such as Cummins Engine, Lincoln Electric, Merck, Motorola and Royal
Dutch/Shell, among others (Post et al., 2002). In fact, McGahan has written on
the General Motors’ Saturn car division, whose original mission, governance
structure and internal processes fit the key criteria of a stakeholder firm
(McGahan and Keller, 1995). For example, employees established themselves as
influential stakeholders who contribute to problem solving, conflict resolution
and quality improvement (see also Kochan and Rubinstein, 2000).

Take on the tough, intractable, difficult, significant issues

of our age

Perhaps inspired by John Maynard Keynes, the statistician John W. Tukey

(1962: 13–14) noted: ‘Far better an approximate answer to the right question,
which is often vague, than an exact answer to the wrong question, which can
always be made more precise.’ It is a grave mistake for social science research to
forgo approximate knowledge. The most important and interesting questions in
the field are thorny, difficult, theoretically knotty and resistant to prediction. In
the world today, some issues have emerged that are so pervasive and of such
overpowering significance that they must command our research attention (Van
de Ven, 2002). There is much to gain by employing techniques and perspectives
that yield approximate insights into the right questions, despite the fact that
these practices may play on our insecurities about the robustness and legitimacy
of our young field. Because we deal in a domain that vitally reflects societal
well-being (namely, the determinants of organizational performance), we cannot
ignore societal concerns (Hambrick, 1994). The stakes are simply too high to
avoid taking the risks.
The implications of these issues for strategic management arise at a number
of levels. First, each of these major phenomena in the world stands to influence
and to be influenced by business institutions, processes and behavior. We need
to know much more about the dynamics of macro-business change. The relevant
analyses may cover familiar territory, such as how can and should inventories be
managed under different interest-rate regimes. They may explore new ground
related to other institutions, such as, how reasonable alternative future scenarios
for the evolution of the WTO change the global prevalence of intellectual-
property protections and influence the deployment of knowledge-based capital
in developing countries.

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Exploring this new ground will likely be rewarding both academically and
professionally. Multinational corporations in pharmaceutical, biotechnology and
other knowledge-based industries are likely to find research on alternative
futures for international organizations and intellectual property attractive to
review and, indeed, support financially. But, exploring this new ground is also
critically important to developing countries that may or may not have the
resources to support our research activities. We should not shrink from a com-
mitment to address tough issues implicating private, profit-oriented and
resource-rich firms as well as public, welfare-oriented and resource-constrained
policies. The strategic issues are too important. The new ground needs explo-
ration. Strategic management researchers are ready to begin exploration to
confront the strategic implications of these issues.
Second come the international scale and scope of the phenomena mandates
framing our agenda to encompass heterogeneity in the performance of both
markets and institutions as forms of organization (Walsh et al., 2006). By link-
ing the fields of strategic management, organization theory, international busi-
ness studies, macro-economics and corporate finance, we can expand our impact
in this area. We need to add a new level of analysis into the mix of the interplay
between national strategy and corporate strategy. For example, teasing out the
strategic implications of increased global trade for companies that compete in
different countries requires a multi-disciplinary perspective for which the field
of strategic management is well suited. Elevated levels of trade can lead to shift-
ing trade patterns based on comparative advantage. As multinational companies
seek to confront problems in their fundamental positioning and adaptation, the
implications for their organization may be significantly greater than we have
previously considered. Expanding our theoretical bases, methods and empirical
approaches to integrate advances that have been pioneered in contiguous
disciplines will allow us to break new ground without stepping away from our
established bases of competencies.
Third, each of the major phenomena listed earlier has economic, sociologi-
cal, cultural, political, historical, anthropological and behavioral dimensions.
One of the greatest challenges for the field of strategic management over the
next few years will be to find ways to integrate diverse theoretical and empirical
methods into actionable insights regarding phenomena that have these multi-
faceted and complex characteristics. How can we teach and conduct research
cumulatively? How do we build on each other’s insights using new methods
that reflect different disciplinary traditions? Making headway on these questions
will require a substantial investment in conferences, journal special issues and
other mechanisms designed to enhance our communication.
Fourth, these issues will test our willingness to step beyond descriptive and
normative analysis into prescriptive territory. The insights that we generate into
these strategic issues are likely to be politically charged, alarmist and even
polemical. The field of strategic management has become somewhat conserva-
tive regarding prescriptions. We rightly avoid, as best we can, reaching beyond

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what we really know in offering (potentially unsound) advice to managers about

what to do. Instead, our approaches are grounded in solid analysis based on
established and widely accepted empiricism. Of course, descriptive and norma-
tive thinking will continue to be valuable in the strategic management field,
and yet unless we are willing to consider the strategic implications of our
insights for the future, we may be guiding our constituents through the rear-
view mirror. Some of the problems that confront the strategic management field
today involve step-function, order-of-magnitude changes in the business envi-
ronment. If we rely only on insights gleaned from established trends, we may
find ourselves extrapolating from irrelevant paradigms. As our field develops,
we need to establish new standards for evaluating academically rigorous contri-
butions that acknowledge the implications of research findings for management
practice under the new paradigms. Perhaps we can establish such standards with
the help of leading scholars from contiguous disciplines. If one believes – as we
certainly do – that the inclusion of new theory, methods and empirics informed
by economics, psychology, sociology, political science and history will lead to a
renewal of the strategic management field, then one way to move forward is to
bring into the field leading economists, psychologists, sociologists, political sci-
entists and historians with an appreciation for the perspectives and problems of
strategic management.
Fifth, we must develop better approaches for understanding how
business interrelates and interacts with other types of institutions. Some of
these other types of institutions – and particularly governments and universities –
have been salient in the strategic management field for decades, and yet
more could be done to model and understand the diversity of relevant actors
and of their interactions. We applaud Henisz and Zelner’s (2003) essay in Strategic
Organization, which calls for scholars of strategic organization to focus on
non-market strategies that firms deploy in seeking economic rents (e.g. lobbying
to influence regulation and laws). As the business environment changes over
forthcoming decades, the interplay between businesses and other institutional
and non-institutional constituents will constitute much of the action.
Other types of institutions and conditions (such as cultural norms,
technological readiness, consumerism, productive efficiency, etc.) are more
difficult to evaluate through the strategic management field’s traditional
lenses, and yet significant progress has occurred in contiguous fields that are
focused on similar concerns. Some of the most important opportunities in
strategic management relate to the development of absorptive capacity for the
theories, methods, data and analytical techniques of anthropology, history,
political science and other social sciences that have not been emphasized
historically.
Finally, we suggest that we think of our field’s agenda as one of explaining
heterogeneities in organizational performance in a broad sense. This new
approach is consistent with the conception of strategic organization that we have
outlined here.

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We hasten to caution our readers that there are trade-offs and risks in pur-
suing our recommendations. In particular, there are risks to both the individual
scholar and the strategic management field in substituting a predominantly
single-discipline-based approach in favor of the more inclusive and integrative
approach that we advance in this article. First, we may not be judged by the
standards of the strategic management field, but rather by the standards of
related fields with established methods, empirical findings, approaches to policy
and powerful, passionate senior professors. Yet we must remain committed, as
energy is depleting despite the policy prescriptions of political scientists,
poverty is deepening in many parts of the world despite the efforts of econo-
mists, and incomes are shifting in unplanned and uneven ways despite the
analysis of sociologists. Second, we may hit bumps in the road within strategic
management in the development of theory and in the analysis of important phe-
nomena. Our work might, especially initially, be flawed and inconsistent, which
may compound the criticisms that we face from related fields. Third, the eclec-
ticism that we advocate by asking you, our reader, to consider other social-
science disciplines such as anthropology, behavioral psychology, etc., may
stretch you thin. The challenge of integrating insights from diverse perspectives
should not be underestimated. Many of us may not succeed initially, and some
of us may never succeed. Fourth, our new pedagogy may lead to even greater
variance in student response. Some of the experiments will fail. Change in the
classroom will inevitably require redoubled commitment to the process, which
may distract us from our conventional research agendas. The risks for junior
faculty may be too substantial. As a result of all these risks, it is our ardent hope
that senior faculty in the field of strategic management, protected by tenure,
will lead the charge. After all, the institution of tenure was established to
stimulate just this sort of risky innovation.

The marketplace of ideas

The field of strategic management has become institutionalized in many busi-

ness schools over the last 20 years. We have accomplished a great deal, and there
is much to celebrate. Scholars can now earn doctorates in strategic management
and are often judged for promotion and tenure on criteria that emerge from
within the strategic management field rather than from the root disciplines. We
have (mostly) convinced our deans and colleagues that ours is a distinct field of
study, and we have trained a generation of MBAs in our frameworks.
These accomplishments are shadowed by some important challenges that
reflect, but only in part, the regular course of change as a new field emerges and
develops (Kuhn, 1962). Our relationship with our root disciplines is sometimes
shaky, and we are not always judged by the criteria of strategy rather than of the
root disciplines. We sometimes equivocate about what we are adding above the
disciplines. Our standards are too low in some instances. We are not always

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systematic. We do not have a consensus about appropriate criteria for perfor-

mance. Above all, our research to date has shown that the firm, which has been
our principal subject of study, cannot be fully understood independently of the
markets and other institutions in which it operates.
In this essay, we offer a series of ideas regarding how the strategic manage-
ment field is developing. We want to encourage solutions to these problems by
suggesting that this is a crucial time for three reasons: first, our courses are not
commanding our students’ attention as they once did; second, the opportunity
for new theory is significant; and third, the problems of strategic management in
the world are so compelling that we should get our acts together. We anticipate
that this generation of students in strategic management research will contribute
greatly to the evolving science of organization. We can and should do better.

Acknowledgements

We thank Raffi Amit, Nick Argyres, Jay Barney, Pam Barr, Bert Cannella, Ming-Jer Chen, Jeanne
Connell, Moshe Farjoun, Nicolai Foss, Ranjay Gulati, Don Hambrick, Jinyu He, Connie Helfat,
Amy Hillman, Mike Hitt, Gerry Johnson, Anne Marie Knott, Bruce Kogut, Yasemin Kor,
Michael Leiblein, Marvin Lieberman, Ravi Madhavan, Alfie Marcus, Kyle Mayer, Rita McGrath,
Doug Miller, Will Mitchell, Jackson Nickerson, Joanne Oxley, Laura Poppo, Michael Ryall, Mark
Shanley, J.-C. Spender, Michael Tushman, Paul Vaaler, Andy Van de Ven, Gordon Walker, Heli
Wang, Jim Westphal, Todd Zenger and the editors for their comments on previous versions of
this essay. The authors are solely responsible for the views presented here.

Notes

1 To be sure, in some business schools, strategic management courses are in more demand than
ever. But at several flagship schools, our strategic management courses are not performing to
previous standards. There are at least seven reasons why this decline has occurred. (1) Several
basic frameworks, such as Porter’s (1980) approach to competitive strategy, are sometimes
taught in the introductory marketing, organizational behavior, entrepreneurship and finance
courses, which are typically prerequisites for the introductory strategic management course. (2)
The methodological depth in strategic management that has occurred along with the maturity
of the field requires greater specialization of empirically minded junior faculty; this method-
ological depth can work against the success of young scholars interested in the generalist skills
and teaching savvy that typically arise from high engagement with companies through field-
work. (3) Most fields in business schools go through phases of popularity with practitioners;
strategic management courses may now reflect this cycle. (4) The rewards for pedagogical inno-
vation are usually low and in some cases it is even discouraged institutionally. (5) Important
questions have changed and the strategic management field has simply not kept up. (6) We fre-
quently do not address the critical problems of managers. (7) We have distanced ourselves from
the goal of teaching our business students to develop better judgement (i.e. the approach to
critical thinking that characterized the field of business policy), and, as a result, we no longer
excite our business students by teaching them how to identify, formulate and frame unstruc-
tured problems (Nickerson and Zenger, 2004, deal particularly with this last point).

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2 To be sure, often such challenges to the strategic management field from within our univer-
sity communities provide a service for us all to improve our scholarship, which is in the
spirit of Sir Isaac Newton’s statement that: ‘If I have seen further it is by standing on the
shoulders of giants.’ We are also reminded of a quote from MIT Professor Hal Abelson: ‘If
I have not seen as far as others, it is because giants were standing on my shoulders.’
3 There are, of course, notable exceptions. For example, Knott and Posen (2005) evaluate entry
and exit in the banking industry from a public policy perspective; Oster (1999) discusses the
unique challenges of strategic management in non-profit organizations; and Ouchi et al.
(2005) provide strategic and organization theory insights for improving our public schools.
However, we believe that dominant theories in strategic management can be leveraged to a
far greater extent for policy implications. For example, research on the behavioral theory of
the firm can be applied to public administration; transaction costs theory can be applied to
transition economies; property rights can be applied to the firm’s institutional environment;
agency theory can be applied to a theory of regulation; and issues on dynamic capabilities
and absorptive capacity can be (re-)applied to developmental economies (Eckhaus, 1989).
We discuss these opportunities in greater depth below.
4 We attribute the influence of Porter (1980) in both research and practice to: (1) actionable
implications with the manager at center stage; (2) substantive integrity based on four
decades of theoretical and empirical research reflecting the structure–conduct–performance
paradigm of applied microeconomics in industrial organization; (3) extensive field research;
and (4) conceptual and expressive clarity about the connections between institutions (partic-
ularly firms) and markets. We believe that these strengths should be celebrated and serve as
a model for further contributions. Thanks to Bruce Kogut for challenging us to explain why
this work was so influential. See Argyres and McGahan (2002) for further elaboration.
5 Since the strategic management field is pluralistic we import and cite works from econom-
ics, finance, psychology, sociology and other contiguous disciplines. However, the base disci-
plines less frequently cite works from our major research journals. In part, that is evidence
that we need to do better in producing research that has an impact. That said, those in
mature disciplines have less incentive to cite the works of those not in their own specialized
field. On balance, we maintain that the pluralistic, open-system model of strategic manage-
ment that makes us a net importer of ideas contributes to the strength of our strategic man-
agement field. We thank Bruce Kogut for bringing this important issue to our attention.
6 McGahan and Mitchell (2003) identify these building blocks as architectural and modular
capabilities, dynamic capabilities, informational architecture and flows, institutional influ-
ences on innovation, learning and routines, mechanisms for transferring learning, models of
industry/collective change, network effects, organizational modes of change, dynamic
resource-based analysis and rugged landscapes.
7 Postrel’s (2002: 304) comments on contextualism are noteworthy: ‘The central insight of the
knowledge perspectives on organizations is that knowledge inputs are necessarily embedded
in a context – cognitive and behavioral and social – which powerfully constrains their dis-
covery, their transfer from one set of actors to another, and their usefulness in different situa-
tions. This insight, implicitly or explicitly drives discussions of path dependencies in
capabilities (Penrose, 1959) (what you already know biases what you are likely to learn next),
imitation of others’ technologies (Cohen and Levinthal, 1990) (absorbing new ideas requires
a basis for prior knowledge), and transfer of best practices from one site to another (Nelson
and Winter, 1982; Zander and Kogut, 1995) (routines often rely on a context of tacit cues
from other people or from machines, which must be articulated in an understandable way in
order to be replicated).’
8 Rynes et al. (2001) report a substantial body of research documenting considerable gaps
between management research and management practice that corroborate Tushman’s views.
Tushman et al. (forthcoming) find empirically that action-learning programs (Lewin, 1951;
Susman and Evered, 1978) significantly enhance both individual and organizational

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outcomes and maintain that the capability of our executive education programs to create and
develop contexts for engaged scholarship is an underdeveloped opportunity for business
schools in general and our faculty in particular.
9 In a moving and bitter speech delivered at the 2005 Technology, Entertainment, Design
(TED) conference, Ashraf Ghani, former Afghanistan finance minister, indicated that
modern economic theory – and the policies associated with the theory – had nothing to do
with economic reality in Afghanistan (Ghani, 2005).

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Joseph T. Mahoney is Professor of Strategic Management at the College of Business of the

University of Illinois at Urbana-Champaign. His credits include a book and over 35 articles on
strategic issues and organizational economics. He has taught courses to undergraduates,
MBA candidates, executives and doctoral students. Executives have voted him Executive
MBA Professor of the Year five times. His research focuses on the behavioral theory of the
firm; transaction costs theory; agency theory; dynamic resource-based theory, real options
theory, and stakeholder and property rights theory. Address: Department of Business
Administration, College of Business, University of Illinois at Urbana-Champaign, 140C
Wohlers Hall, 1206 South Sixth St, Champaign, IL 61820, USA. [email: [email protected]]

Anita M. McGahan is Professor and Everett W. Lord Distinguished Faculty Scholar at the
Boston University School of Management, is also a Senior Associate at the Institute for
Strategy and Competitiveness at Harvard University. Her credits include two books and
over 60 articles and case studies on strategic issues of competitive advantage, industry
evolution and financial performance. She is pursuing a long-standing interest in the inception
of new industries and in the implications for comparative advantage and international
development. She has taught courses in strategy and history to MBA candidates, executives
and doctoral students at both Boston University and the Harvard Business School, and has
been elected by her students as Professor of the Year repeatedly. She has developed five new
business-school courses (both required and elective) over the last seven years, each of which
has earned very high ratings and achieved strong – even unprecedented – popularity.
Address: School of Management, Boston University, 595 Commonwealth Avenue, Boston,
MA 02215, USA. [email: [email protected]]

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